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How to Buy a Short Sale Home

Updated on December 28, 2012

The prolonged downturn in the housing market has left many homeowners with no other option for selling their home than to attempt a short sale. This type of transaction occurs when a homeowner owes more on their mortgage than the current value of the home. In order to avoid taking ownership of the home through an expensive foreclosure, the bank holding the lien on the property is often willing to allow a special sale where the home is sold directly to an interested buyer for less than the amount owed on the current loan.

This is often a fantastic opportunity for a qualified buyer to save big on the purchase of a new home and a way for the home seller to get out from under a financial burden without the massive damage to their credit score a foreclosure would create. While buying a home this way can be an excellent way to get a great deal on a real estate purchase, the transactions can be rather complicated and don't close nearly as fast as a traditional purchase in many cases.

How it Works

Here is a quick overview of what you may be dealing with when you decide to go after a short sale property. The first hurdle that must be overcome is arriving at a price that both the buyer and the seller are willing to agree on. As you can see, it begins much like any other real estate transaction.

The thing you have to keep in mind here is that the seller in this case is not the party who is going to ultimately control the selling process. The bank who holds the note will have the final say as to whether or not the selling price is acceptable and if the transaction will be allowed to move forward. This can be complicated even further if the homeowner has a second mortgage on the property and there are actually multiple lien holders.

In these cases, the two finance providers must also reach an agreement as to how the proceeds from the transaction are to be split between them. This can be a time consuming process and if one institution decides that they are not happy with the split, they can prevent the deal from moving forward. As long as you are willing to be patient as a buyer while this process works itself out, the satisfaction of buying a home at below market value can be a satisfying reward.

Speeding up the Process

If you are considering purchasing a short sale, it is extremely important that you are prepared and well organized going into the process so you can move as fast as possible.

1. You must be pre-approved. Note that I did say pre-approved and not "pre-qualified" here. When buying a short sale property, the bank will want to see that they have a 100% pre-approved buyer in place before they take the time to evaluate the potential transaction. Start by selecting a mortgage lender and going through the application process at least 30 to 60 days before you plan to make an offer on a home so you can make sure that your loan is fully approved and ready to go.

2. Select a real estate agent with experience handling short sale homes. This is nearly as important as getting pre-approved. Buying one and getting it to close requires a lot of phone calls and negotiation. Having an experienced professional on your side who knows exactly who to call and when to call them can make the difference between a successful transaction and one that never makes it to the desk of a negotiator at the bank. Banks are notoriously slow to move on these transactions and having someone to push the process along at each stage makes a huge difference.

3. Be prepared to wait. Short sales take an average of 60 to 120 days to complete and I have personally been party to a transaction that took nearly nine months. Be sure you and your family have a plan for where you will live while you complete the process.

4. Identify several homes of interest. You can improve your odds of being able to close on a home fast if you are open to several different properties. That way if you find that one hits a roadblock or just isn't progressing the way you would like, you can be ready to move quickly on another property. Often times with short sales, the first offer to come in is the one that gets submitted to the bank. You don't want to find yourself in the position of being a back up offer where yours only goes in if someone else's transaction doesn't come together.

The Reward

As long as you are patient and have planned well, the reward for your efforts will quickly become apparent on moving day! There's no better feeling than to move into the house of your dreams knowing that you got the deal of a lifetime.

The current real estate downturn will likely be referred to as a "bust" for quite some time but there will be silent winners scooping up beautiful homes at bargain basement prices along the way. You can turn a deflated economy into an incredible investment opportunity.

One of the biggest advantages to buying a short sale home is that you can live in and enjoy your investment while you wait for it to grow (try doing that with your saving account)! Done properly, buying a home this way is potentially a great way to realize the benefits of home ownership. Depending on when you complete your purchase, you may even be able to qualify for some significant tax advantages as well.

Have you ever purchased a short sale?

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    • profile image


      3 years ago

      I found a house that I really like, but it's being sold on short sale. I haven't sold my house yet, so I'm not sure how that will work out. Am I going to have to sell my house short sale, or is there a way to get the other one and sell my house normally?

    • alispaisley profile image


      7 years ago

      Great hub, Thanks for the information.

    • JupiterAgent profile image


      7 years ago

      great writeup. thank you for the post. Glad people are finally stepping up to congress

    • gr82bme profile image


      8 years ago from USA

      Great advice. I am sure a lot of people will get help from this hub.

    • profile image

      Trevor M on How to Buy a Home 

      8 years ago

      There's a new bill that has been introduced in the U.S. House of Representatives that would impose a 45-day deadline on lenders to respond to short sale offers.

      If you know anything about short sales, the banks can drag their feet for months. Many times buyers just back out of the deal.

      Now, with the bipartisan bill (H.R. 6133), sponsored by Reps. Robert Andrews (D-New Jersey) and Tom Rooney (R-Florida), Americans just may be getting some needed help.

      Congressman Rooney is quoted as saying, “I have heard from many short sellers in Florida whose potential homebuyers have walked away because they couldn’t get a ‘yes’ or ‘no’ from their lenders. This bill would spur growth in the housing market by helping sellers and buyers complete short sales quickly.”

      I agree with the Congressman. I believe the banks, if forced to make a decision, many more short sale offers will be accepted. Let's hope so anyway!

    • regina_favors profile image


      8 years ago

      Thank you very much for this article. My mom is interested in buying a short sale and she needed to know some information. This was very informative and instructive. Excellent job. Thank you. RYF

    • idreesfarooq profile image


      8 years ago from fiverr dot com/idreesfarooq

      Title of your article grabbed me at once. I was wondering to know more about short sale home. Great sharing. Thanks

    • profile image


      8 years ago

      Thanks for the info!! Im looking at a short sale home for second time tomorrow. As the home needs lots of work but hoping to get it for very cheap! This seems to be even more tricky cause not sure what house is worth in its condition, and how much $$$ it will take to fix! All is looking like im going to come out ahead! THANKS AGAIN

    • Rich Cederberg profile image

      Rich Cederberg 

      8 years ago from Albuquerque, New Mexico

      Informative article about a controversial subject. I usually recommend my buyers pursue bank owner homes rather than deal with the long delays waiting for bank approval, but you are absolutely right, the listing agent had better be experienced at closing short sales or you will be wasting your time.

    • fdoleac profile image


      8 years ago from Hollis, New Hampshire

      I would add one more comment. Focus on homes without second and third lienholders.

    • fdoleac profile image


      8 years ago from Hollis, New Hampshire

      Very good and informative article. Looking forward to the new process in April. Lenders may be more responsive and assist us in successful transactions.

    • prasetio30 profile image


      8 years ago from malang-indonesia

      Nice information. You have great tips in this hub. And the idea for buy a short sale home good for us and become another option. Good work.


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